GEMS sparkle for European Assets Trust says F&C

The £172m European Assets Trust has today announced financial results for the year ended 31 December 2006.

The net asset value of the Netherlands-domiciled company rose by 35.9 per cent in Sterling total return terms compared to a 31.2 per cent return for its benchmark index (the HSBC Smaller Europe (ex UK) Index). Since December 1997, when the company's investment remit was re-focused on the European smaller company asset class, the net asset value Sterling total return has been 278.5 per cent compared to a 207.2 per cent rise for the benchmark index.

The trust is also offering shareholders in 2007 an annual dividend yield equivalent to 6 per cent of previous year-end net asset value. This pay-out, which is funded predominantly from capital reserves, is up by 29 per cent compared with 2006.

Lead investment manager Crispin Longden, whose fund invests in Growing European Mini Companies as well as medium-sized companies, with a market capitalisation below that of the largest company in the HSBC Smaller Europe (ex UK) Index or to a monetary value of €2.5 billion, whichever is the greater, looks for companies which can grow their market capitalisation significantly and generate strong profits growth and shareholder returns over the long term.

"We have identified several great companies with sound business models, which have successfully developed their initial franchise to a point where they can deliver consistent, reliable earnings growth and shareholder value creation. For example, take Logitech. We first bought into the Swiss-based company at a price below 3.00 Swiss Francs in June 1999. Logitech began its life making computer pointing devices or 'mice' but has since expanded its business to keyboards and webcams, where it is now the market leader. The company continues to produce innovative products at a low cost and has just delivered its 33rd consecutive quarter of double-digit revenue growth. The price on 31st December 2006 was 35.15 Swiss Francs per share," said Longden. This is definitely a case of the 'mouse that roared'.

Neochimiki, Greek producer and distributor of chemicals and detergents has also been a star performer for the trust.

"We were able to spot the potential of little-known Neochimiki early on before it received any broker analyst or major investor attention. We bought the stock in February 2005 when it was a very small company with a market capitalisation of just €133m at a price of €3.70 per share. In just two years the company has grown to a market capitalisation of €700m and we finally sold out last week at prices as high as €21.00 per share. At the time of first purchase Neochimiki's share price did not reflect management's ability to deliver a clear long term business strategy. Around 60% of the business is focused on the re-packaging and distribution of chemicals across Greece which it bulk buys from the global players in the market. It also produces its own chemicals and detergents which are sold through Greek supermarkets. The company recently rolled out its franchise to the Balkans with eventual plans for launch into Russia."

But the best performing companies in European Assets Trust came from Ireland in 2006, profiting from the strong economic growth in their home market and a natural extension of their franchise to the UK.

Anglo-Irish Bank, a long-time favourite and one of the largest holdings in the portfolio, is today worth €11.6bn.

"We were able to buy the bank back in January 2001 when it was still small enough to qualify for inclusion in the fund. Anglo-Irish has since been able to grow its business through prudent management, with strict controls on its loan to value ratios and the ability to run a sensible balance sheet. From its early days as a niche corporate lender in the Republic, the bank has garnered a useful share of the UK market, and can boast a growing private wealth management business in the UK, Ireland, Austria and Switzerland," said Longden.

"In light of last week's correction and in a market where some commentators are suggesting that smaller companies have had their day, we are confident we can continue to deliver decent returns from a concentrated portfolio of holdings which share the characteristics of generating value for shareholders over the longer term. It is not yet time to abandon the GEMS", concludes Longden.